Liontrust US Opportunities Fund

Q2 2021 review

The Liontrust US Opportunities Fund returned 9.9% in the second quarter, outperforming both the S&P 500 Index return of 8.3% and the IA North America sector average return of 7.8% (both comparator benchmarks)*.

 

US equity markets continued their strong rally but were driven more by the secular growth areas of the market as opposed to the more cyclical areas which have dominated in recent quarters. The more cyclical and reflationary factions of the market have enjoyed a strong run after the vaccination efficacy announcements last October and thanks to the Democrats’ more stimulatory agenda catalysed by a Biden presidency last November and the Georgia Senate election run-off seats in January. The dominant debate this year, so far, has surrounded inflation and whether the pick-up in inflation we have seen is transitory in nature or something more structural which will cause the Fed to tighten monetary policy quicker than otherwise might have been expected. Alongside evidence that the US economy is bouncing back from the pandemic extremely impressively, growth in 2021 is likely to be fastest in almost 40 years, fears over inflation had driven 10-year US bond yields up to c.1.75% by the end of the first quarter, rising by 0.83% in just three months. Inflationary fears have subsided during this latest quarter, with investors deducing that many of the factors that are causing the current pick-up in inflation will be more temporary in nature (e.g. supply chain shortages). Bond yields subsequently subsided helping the more secular growth areas of the market over the quarter.

The swift economy reopening in the US has been helped by the impressive vaccination rollout. By the end of June over 2/3rds of US adults had received at least one dose and this has spurred a sharp reduction in daily Covid case counts and hospitalizations since the start of the year. The Delta variant has however inevitably found its way to the US and by the end of the quarter was thought to account for 20% of all cases. This will rise and could cause a speedbump to the rapid reopening where US consumers are sitting on substantial savings and have shown clear appetite to spend their stimulus cheques.

The strong macro backdrop has shown up in earnings for US companies. First quarter earnings which were reported during the last 3 months posted one of the strongest upside surprises in history with S&P 500 earnings growth finishing up 49% year over year (more than double the 21.6% consensus expectation). It now looks possible that earnings growth for S&P 500 could hit 45% for 2021 as a whole.

The Liontrust US Opportunities Fund outperformed the S&P 500 and the wider peer group during the quarter. The majority of the performance has been from stock specific factors but in general the best performing stocks during the quarter benefit from end markets with secular growth. These companies rebounded this quarter after suffering from market rotations earlier in the year. Strong performers at the stock level included IQVIA, the fast growing Contract Research Organisation (CRO) which powers clinical research. There have been a number of mergers in the CRO industry in the last year which has increased the scarcity value of companies like IQVIA. Other strong performers of note included Calix, the provider of cloud, software platforms, systems and services to communications service providers, and also mega-cap stocks, Alphabet, Microsoft and Apple.

On the other side of the ledger, 8x8 and Bright Horizons were two notable detractors over the quarter. Bright Horizons’ first-quarter revenues were down 23% compared to the same period in 2020, due to lower enrolment in childcare centres able to open and many others still temporarily closed. This is the US market leader in corporate-sponsored childcare, offering a range of products to support parents of young children in getting back to work.

In terms of portfolio activity, we have made relatively minor changes to the portfolio and have been focusing our attention on companies and industries which we think we will structural beneficiaries of the post-Covid world. The Fund has begun to build positions in a couple of healthcare companies in the broad “out of hospital” industry, including Home Health and Primary Health care provision. Both of these end markets will benefit from the increasing drive to focus on value-based care in the US where out-of-control healthcare costs have been prevalent for far too long. We continue to believe that disruption, and particularly digital disruption, will remain the most important determinant of corporate success. We continue to search for companies that we believe will be drivers of this disruption (disruptors), help fuel it (enablers) or indeed benefit from it (embracers). 

Discrete years' performance (%)**, to previous quarter-end:

 

 

Jun-21

Jun-20

Jun-19

Jun-18

Jun-17

Liontrust US Opportunities C Acc GBP

33.6

10.9

12.8

19.3

25.4

S&P 500

25.3

10.1

13.9

11.9

20.6

IA North America

27.2

8.4

11.3

12.0

23.8

Quartile

1

2

2

1

2

 

*Source: FE Analytics as at 30.06.21

 

**Source: FE Analytics as at 30.06.21. Quartiles generated on 07.07.21


For a comprehensive list of common financial words and terms, see our glossary 
here.

  

Key Risks

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. Investment in funds managed by the Global Equity (GE) team may involve investment in smaller companies - these stocks may be less liquid and the price swings greater than those in, for example, larger companies. Investment in funds managed by the GE team may involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The team may invest in emerging markets/soft currencies or in financial derivative instruments, both of which may have the effect of increasing volatility. Some of the funds managed by the GE team hold a concentrated portfolio of stocks, meaning that if the price of one of these stocks should move significantly, this may have a notable effect on the value of that portfolio.

Disclaimer

The information and opinions provided should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.

Thursday, July 29, 2021, 10:09 AM